Annual Financial Report

RNS Number : 0385R

Montanaro UK Smlr Cos Inv Tst PLC

12 June 2018

 

Montanaro UK Smaller Companies Investment Trust Plc

LEI: 213800UDDXXTXIF29P85

Annual results announcement for the year ended 31 March 2018

Highlights

Results

	As at	As at
	31 March	31 March
	2018	2017	% change
Ordinary share price1	560.0p	510.0p	9.8
Net Asset Value ("NAV") per Ordinary share2	679.1p	631.6p	7.5
NAV (excluding current period revenue) per Ordinary share	666.8p	621.6p	7.3
Discount to NAV (excluding current period revenue)	16.0%	18.0%
NSCI3	7,878.4	7,701.3	2.3

¹ London Stock Exchange closing price.

² Including current period revenue.

³Capital only.

	Year to	Year to
	31 March	31 March
	2018	2017	% change
Revenue return per Ordinary share	12.3p	10.0p	23.0
Dividend per Ordinary share	11.0p	10.5p	4.8
Gross assets1	£247.7m	£232.2m	6.7
Net assets	£227.3m	£211.4m	7.5
Market capitalisation	£187.5m	£170.7m	9.8
Net gearing employed2	2.9%	2.7%
Ongoing charges	0.8%	1.2%
Portfolio turnover3	26.8%	34.9%

¹ Gross assets are the sum of both fixed and current assets with no deductions.

² Net gearing is the total debt, net of cash and equivalents, as a percentage of the total shareholders' funds.

³ Portfolio turnover is calculated using the total purchases plus the sales proceeds divided by two as a percentage of the average total investments at fair value during the year.

Chairman's Statement

Background

I am pleased to present the twenty-third annual report of MUSCIT for the year ended 31 March 2018.

An investment trust is an attractive vehicle for shareholders to invest in quoted UK "smaller" companies, which are less well researched and more illiquid than larger, blue chip companies.

Since inception in 1995, the Company has delivered a cumulative net asset value ("NAV") total return of 681% compared with an increase of 419% for the composite benchmark.

Results

I am delighted to report that the actions taken to refresh the portfolio, which included Charles Montanaro resuming day to day management, explained in my Statement last year have resulted in a NAV outperformance of 5% (on a capital return basis) over the past year against the Benchmark. In addition, the Company's NAV per share increased by 7.3% during the year and the share price gained 9.8% rising to 560 pence, reflecting a modest tightening of the discount over the year.

The introduction of AIM stocks has been beneficial to performance. At 31 March 2018, these represented 27% of the portfolio by value. Given this was close to our self-imposed limit of 30%, the Board decided to increase the limit to 40% with Board approval required for exposure above 35%.

This amendment to the Board's investment restrictions was announced on 8 May 2018.

Benchmark

With the increased ability to invest in companies traded on AIM, the Board has considered if the NSCI remains an appropriate benchmark or whether it should be replaced by the Numis Smaller Companies plus AIM (excluding investment companies) index ("NSCI plus AIM"). The NSCI covers the bottom tenth of the main UK equity market by market value and has been published continuously for over 30 years. At the start of 2018, this latter index consisted of 350 companies.

The NSCI plus AIM consists of 1,274 constituents. However, as many of these companies would not meet Montanaro's strict investment criteria, the Board has decided to retain the existing Benchmark.

Discount

The discount of MUSCIT's share price to NAV, stood at 16.0% on 31 March 2018, compared to 18.0% at the end of the last financial year excluding current period revenue.

Share Buy Backs

The Board is responsible for the implementation of the share buy-back programme which is undertaken at arms' length from Montanaro. No shares were bought back during the year.

As at 31 March 2018, no shares were held in treasury.

Dividend

MUSCIT's primary aim is to deliver capital growth to its shareholders rather than dividend income. Nonetheless, the high quality of the companies in which we invest has allowed us to grow our dividend over time.

The Board proposes a final dividend of 11.0 pence per Ordinary share to be paid on 27 July 2018 to shareholders who appear on the register at the close of business on 29 June 2018. This represents an increase of 4.8% compared to last year. On average the dividend has increased by 14.0% per annum over the past ten financial years.

Proposed sub-division of Company's Share Capital

The Board is proposing to implement a sub-division of the Company's share capital. This may increase the attractiveness of the Company's shares to potential investors and increase the liquidity in the market for the Company's shares.

In the nine years to 31 March 2018, the Company's share price has increased from 153 pence per share to 560 pence per share. Therefore, the Directors are recommending a five for one share split which will increase the number of ordinary shares in issue by a factor of five. Of course, this will not affect the overall value of the Company.

Based on the closing share price of 560 pence per share as at 31 March 2018, each shareholder will receive five new shares for every one ordinary share previously held and the new shares would be expected to trade at 112 pence per share. The market price of the shares, both before and after completion of the proposed sub-division, will vary depending on market conditions at the time. The proposed sub-division of the Company's share capital is subject to shareholder approval at the Annual General Meeting ("AGM").

Outlook

Currently, there are more reasons for caution than usual: for example, rising inflation - combined with the limited ability of governments worldwide to continue with quantitative easing indefinitely - could lead to higher interest rates and bond yields, perhaps undermining equity valuations. There are fears over trade wars and concerns over the excessive debt levels of countries, corporates and individuals. In the UK, Brexit uncertainties and slowing GDP growth have led overseas investors to reduce UK weightings in portfolios to low levels. For the long-term investor, this might represent an opportunity as these are rebuilt over time.

As nobody can predict the future, the Company's strategy of investing for the longer term in high quality companies with strong balance sheets seems to be a sensible approach in an uncertain world.

The Board was delighted that the Company was ranked sixth in the listing of the top 20 most consistently performing investment companies over the last ten years as published by the Association of Investment Companies on 5 June 2018.

ROGER CUMING
Chairman

11June 2018

Manager's Report

Montanaro

Montanaro was established in 1991. We have one of the largest and most experienced specialist teams in the UK dedicated exclusively to researching and investing in quoted smaller companies. We have a team of 30, which gives us the benefit of local contacts and knowledge that is so essential.

At 31 March 2018, Montanaro's assets under management were over £2 billion.

Investment Philosophy and Approach

Montanaro specialises in researching and investing in quoted UK smaller companies.

We have a disciplined, two-stage investment process. Initially, we identify good businesses within our investable universe - the very best go onto our Approved List of stocks. In the second stage, we assess valuation and select the most attractive investments from the Approved List for your portfolio.

We have an in-house team of eleven analysts who each focus on specific sectors. Utilising their specialist industry knowledge and a range of proprietary screens, they are continually on the lookout for new investment ideas. With around 2,000 companies to choose from, they can afford to be selective.

We look for high quality companies that have strong growth prospects. They must be profitable, have good and experienced management and deliver sustainably high returns on capital employed. We prefer those that can deliver self-funded organic growth without diluting their returns or straying from their areas of expertise. Conversely, we avoid those with stretched balance sheets, poor cash generation, incomprehensible accounts or structurally challenged business models. We also do not invest in companies that generate a significant proportion of sales from products with negative societal impacts such as tobacco, gambling, armaments or alcoholic drinks.

When we consider that we have identified a good company, it must still pass our stringent checklist and be approved by Montanaro's Investment Committee before it is added to our Approved List. A company cannot be considered for inclusion in your portfolio until it has passed this hurdle.

Once approved, we conduct a detailed valuation analysis and wait until there is adequate upside before building a position. While in the short term the market is usually focused on how quarterly results compared to consensus expectations, we place particular emphasis on understanding the extent to which a company can compound its cash flows over the long term. We are willing to pay more for high quality, growing businesses.

We believe that a deep understanding of a company's business model, drivers and the way it is managed is the most important way to manage risk and to add value. We therefore visit our investee companies on a regular basis. We place great emphasis on management and seek to gain an understanding of their goals and aspirations by seeing them operate in their own environment. Their track record is examined in detail along with Board structure, the level of insider ownership and corporate governance policies. We seek to understand where a company will be in the next five to ten years rather than the next quarter.

Once a company has been added to a portfolio, our analysts update its checklist and their assessment of its value regularly. We will sell a holding if we believe that the company's underlying quality is deteriorating or if there has been a fundamental change to the investment case.

In summary, we invest in well managed, high quality, growth companies at sensible valuations. We keep portfolio turnover and transaction costs low and follow our companies closely over many years. We would rather pay more for a higher quality, more predictable company that can be valued with greater certainty. Finally, we align ourselves with our investors by investing meaningful amounts of our own money alongside yours.

Breakdown by Market Cap (ex Cash)

	2018	(2017)
£0 to £250 m	6%	(1%)
£250 m to £500 m	16%	(18%)
£500 m to £1.0 bn	41%	(36%)
£1.0 bn - £1.5 bn	23%	(28%)
> £1.5 bn	14%	(17%)

Breakdown by Index (ex Cash)

	2018	(2017)
FTSE 250*	16%	(12%)
NSCI	57%	(71%)
UK AIM	27%	(15%)
Other	-	(2%)

*Represents those holdings that are in the FTSE 250 and are above the threshold for the NSCI.

Environmental, Social and Governance ("ESG")

As part of their due diligence work, our analysts place a great deal of emphasis on ESG factors alongside fundamental attributes. We work closely with our companies to encourage sustainable business practices, which we believe play an integral part in the creation of long-term shareholder value.

Montanaro believes in a positive correlation between how well a business fares on Environmental, Social and Corporate Governance grounds and the value it creates for its long-term shareholders. Therefore, ESG considerations form an integral part of our assessment of a company's "Quality". These considerations are fully integrated into our investment process and all the research is done in-house. This is only made possible by the size of our investment team.

In addition, we engage with companies in an effort to improve corporate behaviour. As responsible shareholders, we believe that it is our duty to engage with our investee companies where necessary. In our experience, active engagement can help to foster positive long-term change in the way businesses are run.

How to invest

We have invested a great deal of time to make the Company's shares more readily available to investors, particularly through the internet. For example, it is now available on the Fidelity platform and will be added to others in due course. As a group, individual investors have trebled their holding in the Company compared to five years ago. The Board's decision to recommend a 5-for-1 stock split at the forthcoming AGM is part of our strategy to make the Company the vehicle of choice for long-term SmallCap investors.

For further details about how to invest please refer to the website: www.montanaro.co.uk/muscit 

The Portfolio

The portfolio at 31 March 2018 consisted of 55 companies of which the top ten holdings represented 29%.

The Company held positions in 18 companies traded on AIM, representing 27% of the portfolio by value. Our AIM holdings have added significant value during the financial year.

Sector distribution within the portfolio is driven by stock selection. Although weightings relative to the market are monitored, overweight and underweight positions are held based on where the greatest value and upside are perceived to be.

Review

We are pleased to report an outperformance of 5% relative to the benchmark in the year ended 31 March 2018. For the sixth time in nine years, SmallCap performed better than LargeCap: the Numis Smaller Companies (excluding investment companies) index ("NSCI") outperformed the FTSE All-Share index by 5% over the 12 month period.*

It remains a mystery to us that not all investors have an allocation to SmallCap given its remarkable performance record. Over the past decade, the NSCI has returned 11% per annum and outperformed the All-Share cumulatively by 93%. Since 1954, when the NSCI was first constructed, the outperformance of SmallCap has averaged 3.4% a year. Put another way, £1,000 invested in the NSCI at launch would be worth approximately £7 million today while the same amount invested in the FTSE All-Share index would be worth just £1 million.

Context is important when interpreting the good performance of SmallCap over the past 12 months. Investors panicked in the wake of the Brexit referendum in June 2016 and took profits in UK SmallCap, leaving price earnings valuations at a near record discount relative to the FTSE All-Share index. Much of the proceeds were recycled into LargeCap, which at the time felt safer because of its lower exposure to the domestic economy and the anticipated benefits of a weaker Sterling.

Sterling has risen by 13% compared to the US Dollar over the past 12 months, putting a dampener on exporters' earnings, while estimates of UK gross domestic product ("GDP") growth for 2018 and beyond have been seeing small upgrades. The smart money was quick to realise the once-in-a-generation opportunity on offer in UK SmallCap and by March 2017 money was trickling back into the sector again. According to the Investment Association, there have now been 12 consecutive months of net inflows into the UK SmallCap sector.

Gearing

The Alternative Investment Fund Manager ("AIFM"), in consultation with the Board, is responsible for determining the net gearing levels of the Company.  Net gearing remained broadly unchanged compared to the previous year, at 2.9% at 31 March 2018 (2.7% at the start of the financial year).

Outlook

Your portfolio is constructed by selecting the highest "Quality Growth" smaller companies on the quoted UK markets. We do not try to position the portfolio based on economic or political forecasts - in fact we have an aversion to macro-economic predictions. We sleep better at night knowing that your money is invested in a solid business led by a competent management team.

We would like to take this opportunity to thank our investors for their overwhelming support at the AGM in July 2017 in favour of the continuation of the Company (in excess of 97% of the votes cast were in favour).  Thank you. We are grateful and more excited than ever about the future of the Company.

MONTANARO ASSET MANAGEMENT LIMITED

11 June 2018

*Source: Numis.

Twenty Largest Holdings as at 31 March 2018

1.          Dechra Pharmaceuticals

an international veterinary pharmaceutical business.

2.          Big Yellow Group

a real estate investment trust focused on the self-storage market.

3.          Marshalls

the UK's leading provider of landscaping products.

4.          Hilton Food Group

a leading meat packing business.

5.          Restore

the UK's second largest document storage and shredding business.

6.          Consort Medical

medical device technologies for drug delivery.

7.          Smart Metering Systems
an installer of smart gas and electricity meters.

8.          Cranswick

a supplier of premium meat products.

9.          FDM Group

a specialist service business that trains and places IT professionals.

10.       Rathbone Brothers

a provider of investment management and wealth management services for private clients.

11.       Clarkson

a leading shipping brokerage business.

12.       4imprint Group

a supplier of promotional merchandise.

13.       Diploma

a supplier of specialised, consumable products in seals, controls and healthcare across the globe.

14.       Entertainment One

a distributor of film, TV and music content.

15.       Equiniti Group

a share registration and administration business.

16.       Brewin Dolphin Holdings

a provider of investment management and wealth management services for private clients.

17.       Shaftesbury

a property investment company focused on the West End of London.

18.       Polypipe Group

a supplier of plastic pipes and ventilation systems for residential, commercial and infrastructure.

19.       Ricardo

a leading automotive engineering and consultancy group.

20.       Clipper Logistics

a provider of logistics solutions to the retail sector in the UK.

Twenty Largest Holdings as at 31 March 2018 continued

				% of		% of
			Market	portfolio		portfolio
		Value	cap	31 March		31 March
Holding	Sector	£'000	£m	2018		2017
Dechra Pharmaceuticals	Pharmaceuticals and Biotechnology	7,884	2,688	3.4		3.3
Big Yellow Group	Real Estate/Real Estate Investment Trusts	7,037	1,353	3.0		3.0
Marshalls	Construction and Materials	6,900	834	3.0		3.5
Hilton Food Group	Food Producers	6,848	675	2.9		2.5
Restore	Support Services	6,725	608	2.9		1.8
Consort Medical	Health Care, Equipment and Services	6,720	552	2.9		2.9
Smart Metering Systems	Support Services	6,606	825	2.8		2.1
Cranswick	Food Producers	6,399	1,449	2.7		2.9
FDM Group	Software and Computer Services	6,120	1,097	2.6		1.7
Rathbone Brothers	Financial Services	6,100	1,252	2.6		2.8
Clarkson	Industrial Transportation	6,040	913	2.6		2.4
4imprint Group	Media	5,906	442	2.5		2.7
Diploma	Support Services	5,705	1,292	2.5		2.2
Entertainment One	Media	5,620	1,293	2.4		2.2
Equiniti Group	Support Services	5,522	1,088	2.4		-
Brewin Dolphin Holdings	Financial Services	5,517	977	2.4		1.8
Shaftesbury	Real Estate/Real Estate Investment Trusts	5,401	3,018	2.3		2.7
Polypipe Group	Construction and Materials	5,220	695	2.2		2.3
Ricardo	Support Services	5,038	489	2.2		2.2
Clipper Logistics	Support Services	4,928	366	2.1		-
Twenty Largest Holdings		122,236			52.4

A full portfolio listing is available on request from the Manager.

All investments are in ordinary shares unless otherwise stated.

As at 31 March 2018, the Company did not hold any equity interests comprising more than 3% of any Company's share capital.

Analysis of Investment Portfolio by Industrial or Commercial Sector

as at 31 March 2018

Sector	% of portfolio	% of NSCI
Oil and Gas Producers	-	2.8
Oil Equipment, Services & Distribution	-	1.2
Oil and Gas	-	4.0
Chemicals	2.1	2.1
Mining	-	2.2
Basic Materials	2.1	4.3
Construction and Materials	5.2	4.9
Aerospace and Defence	-	2.9
General Industrials	-	0.9
Electronic and Electrical Equipment	5.7	2.0
Industrial Engineering	1.4	2.5
Industrial Transportation	4.4	2.3
Support Services	22.8	10.7
Industrials	39.5	26.2
Automobiles and Parts	-	0.8
Beverages	0.9	0.8
Food Producers	7.4	2.7
Household Goods and Home Construction	4.4	3.2
Leisure Goods	0.3	0.9
Personal Goods	-	1.4
Consumer Goods	13.0	9.8
Health Care, Equipment and Services	6.1	1.8
Pharmaceuticals and Biotechnology	6.1	1.9
Health Care	12.2	3.7
Food and Drug Retailers	-	1.0
General Retailers	2.6	5.2
Media	4.9	4.4
Travel and Leisure	3.8	7.7
Consumer Services	11.3	18.3
Fixed Line Telecommunications	-	1.7
Telecommunications	-	1.7
Electricity	-	0.8
Utilities	-	0.8
Banks	-	2.9
Life and Non-life Insurance	-	2.2
Real Estate / Real Estate Investment Trusts	6.6	11.5
Financial Services	6.0	8.7
Financials	12.6	25.3
Software and Computer Services	9.3	4.6
Technology Hardware & Equipment	-	1.3
Technology	9.3	5.9
Total	100.0	100.0

The investment portfolio comprises 55 traded and listed UK equity holdings.

Business Model and Strategy

PRINCIPAL ACTIVITY

The Company carries on business as an investment trust and its principal activity is portfolio investment. Its Ordinary Shares are traded on the Main Market of the London Stock Exchange.

INVESTMENT OBJECTIVE

MUSCIT's investment objective is capital appreciation through investing in small quoted companies listed on the London Stock Exchange or traded on AIM and to outperform its benchmark, the NSCI.

No unquoted investments are permitted.

INVESTMENT POLICY

The Company seeks to achieve its objectives and to manage risk by investing in a diversified portfolio of quoted UK small companies. At the time of initial investment, a potential investee company must be profitable and no bigger than the largest constituent of the NSCI, which represents the smallest 10% of the UK Stock Market by value. At the start of 2018, this was any company below £1.53 billion in size. The Manager focuses on the smaller end of this Index.

In order to manage risk, the Manager limits any one holding to a maximum of 4% of the Company's investments at the time of initial investment. The portfolio weighting of each investment is closely monitored to reflect the underlying liquidity of the particular company. The Company's AIM exposure is also closely monitored by the Board and is limited to 40%* of total investments, with Board approval required for exposure above 35%*.

The Manager is focused on identifying high-quality, niche companies operating in growth markets. This typically leads the Manager to invest in companies that enjoy high barriers to entry, pricing power, a sustainable competitive advantage and strong management teams. The portfolio is constructed on a "bottom up" basis.

The Alternative Investment Fund Manager ("AIFM"), in consultation with the Board, is responsible for determining the gearing levels of the Company and has determined that the Company's borrowings should be limited to 25% of shareholders' funds. Gearing is used to enhance returns when the timing is considered appropriate. The Company currently has credit facilities totalling £30 million with ING Bank, of which £20 million was utilised via a Fixed Rate Term Loan as at 31 March 2018.  Net gearing at that date amounted to 2.9%.

The Company will not invest more than 10%, in aggregate, of the value of its total assets at the time of investment in other investment trusts or investment companies admitted to the Official List of the UK Listing Authority.

* These investment restrictions were amended on 8 May 2018. Prior to this and at the 31 March 2018 year end AIM exposure was limited to 30% with Board approval required for exposure above 25%

PRINCIPAL RISKS

The Board carefully considers the Company's principal risks and seeks to mitigate these risks through regular review, policy setting, compliance with, and enforcement of, contractual obligations and active communication with the Manager, the Administrator and third party service providers. A core element of this process is the Company's risk register which identifies the Company's key risks, the likelihood and potential impact of each risk and the controls for mitigation.

The Board has carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A summary of the Company's risk management and internal control processes can be found in the Corporate Governance Statement on pages 20 to 23 of the Annual Report and Accounts. Details of the principal risks and how these are mitigated are set out below.

Principal Risks	Mitigation
Liquidity and Discount Management:
The Company's share price performance lags NAV performance due to poor performance, or because SmallCap is out of favour. The Company may become vulnerable to arbitrageurs or a sale from a sizeable shareholder.	The Board regularly reviews: ·     the relative level of discount against the sector; ·   investment performance: − relative to the competition; and − the benchmark. ·   the underlying liquidity of the portfolio; and ·   the share register. The Company may buy back shares when it considers it to be in shareholders' best interests.
Poor Investment Performance:
Returns achieved are reliant primarily on the performance of the portfolio. Underperformance relative to the benchmark and/or peer group may result in a loss of capital together with dissatisfied shareholders	To manage the risk a review is undertaken at each Board meeting with the Manager of portfolio performance against the benchmark and the peer group. The Board will seek: ·  to understand the reasons for any underperformance; and ·  comfort over the consistency of investment approach and style. Ultimately, the Board can terminate the Investment Management Agreement if unsatisfactory performance is considered irreversible and the causes cannot be rectified.
Risk Oversight:
The Manager is taking too much risk in the portfolio leading to unacceptable volatility in performance or excessive portfolio turnover.	Risk oversight is primarily the responsibility of the AIFM, but the Board provides additional oversight through portfolio reviews at each Board meeting. Portfolio turnover is also reviewed at each Board meeting.
Gearing:
One of the benefits of an investment trust is its ability to use borrowings, which can enhance returns to shareholders in a rising stock market. However, gearing exacerbates movements in the NAV both positively and negatively and will exaggerate declines in NAV when share prices of investee companies are falling.	The Board receives recommendations on gearing levels from the Manager, and monitors the appropriate level of gearing at each Board Meeting.
Key Man Risk:
A change in the key investment management personnel involved in the management of the portfolio could impact on future investment performance and lead to loss of investor confidence.	Montanaro operates a team approach in the management of the portfolio which mitigates against the impact of the departure of any one member of the investment team. There is an identified lead manager within Montanaro offering continuity of communication with the Company's shareholders. The Board is in regular contact with Montanaro and its designated manager and will be asked for their approval to any proposed change in the lead manager.
Operational Risk:
The Company has no employees, in common with most other investment trust companies, and relies on the services provided by third parties. It is therefore dependent on the control systems of the AIFM, depositary, custodian and administrator who maintain the Company's assets, dealing procedures and accounting records. Key operational risks include: ·   transactions not subject to best execution; ·   counterparty risk; ·   errors in settlement, title and corporate actions; ·   misstatement of NAV; and ·   breach of the Investment Policy.	The Board monitors operational issues and reviews them in detail at each Board meeting. All third party service providers are subject to annual review by the Audit and Management Engagement Committee as part of which their internal control reports are reviewed. The Company's assets are subject to a liability regime. Unless the Depositary is able to demonstrate that any loss of financial assets held in custody was the consequence of an event beyond its reasonable control it must return assets of an identical type or the corresponding amount.
Breach of Regulation:
The Company must comply with the provisions of the Companies Act 2006, the UK Listing Rules and Disclosure & Transparency Rules, the Market Abuse Regulations and the Alternative Investment Fund Manager's Directive. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings. The Company has been accepted by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions and operates as an investment trust in accordance with the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on profits realised from the sale of investments. Any breach of the relevant eligibility conditions could lead to the loss of investment trust status.	The Company Secretary and the Company's professional advisers provide reports to the Board in respect of compliance with all applicable rules and regulations. Compliance with the accounting rules affecting the investment trust is closely monitored. During the year under review the Company complied with all applicable rules and regulations including AIFMD, the Packaged Retail and Insurance- based Products Regulation and the Second Markets in Financial Instruments Directive.
Financial:
The Company's investment activities expose it to a variety of financial risks that include interest rate and liquidity risk.	Further details on these risks are disclosed in note 18 to the financial statements in the Annual Report and Accounts.

KEY PERFORMANCE INDICATORS ("KPIs")

At each Board meeting the Directors review performance by reference to a number of KPIs. Those KPIs considered most relevant are those that demonstrate the Company's success in achieving its objectives.

The principal KPIs used to measure the progress and performance of the Company are set out below:

Performance to 31 March	%	%
	2018	2017
Change in NAV per share1	7.3	11.3
Change in share price	9.8	10.6
Relative NAV1 per share performance vs benchmark	5.0	(4.1)
Discount to net asset value1,2	16.0	18.0
Ongoing charges ratio	0.8	1.2

¹ Excluding current period revenue.

² The difference between the share price and the NAV.

VIABILITY STATEMENT

In accordance with the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a period longer than the twelve months required by the 'Going Concern' provision and reviewed the viability of the Company and its future prospects over the three-year period to 31 March 2021.

In the absence of any adverse change to the regulatory environment and to the treatment of UK investment trusts, the rolling three year period was determined by the Directors to:

·      represent the horizon over which they do not expect there to be any significant change to the Company's principal risks or their mitigation; and

·      the period over which they can form a reasonable expectation of the Company's prospects.

In its assessment the Board took into account the Company's current financial position, its ability to meet liabilities as they fell due and the principal risks as set out in the Strategic Report. In reviewing the financial position the following factors were taken into consideration:

·      the portfolio is comprised solely of cash balances and equity securities traded on the London Stock Exchange;

·      the current portfolio could be liquidated to the extent of 65% within five trading days and there is no expectation that the nature of the investments held within the portfolio will be materially different in future;

·      future revenue and expenditure projections:

−   the expenses and interest payments of the Company are predictable and small; and

−   there are no expected capital outlays.

In addition to considering the Company's principal risks and the financial position of the Company as referenced above, the Directors also took account of the following assumptions in considering the Company's longer-term viability:

·      the Board and the Manager will continue to adopt a long-term view when making investments;

·      it is reasonable to believe that the Company will maintain the credit facilities currently provided by ING Bank;

·      the Company invests principally in the securities of quoted UK smaller companies to which investors will wish to continue to have exposure;

·      the Company has a large margin of safety over the covenants on its debt;

·      there will continue to be demand for investment trusts;

·      as determined at the AGM held in 2017, the next continuation vote will be in 2022. Further details are provided in the Directors Report;

·      regulation will not increase to a level that makes the running of the Company uneconomic; and

·      the performance of the Company will be satisfactory.

Based on the results of their analysis and in the context of the consideration given to the Company's business model, strategy and operational arrangements, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period of the assessment.

FUTURE PROSPECTS

The Board's main focus is the achievement of capital appreciation and outperformance of the benchmark. The future of the Company is dependent upon the success of the Company's investment strategy. The Company's outlook is discussed in the Chairman's Statement and the Manager's Report.

ENVIRONMENTAL, HUMAN RIGHTS, EMPLOYEE, SOCIAL AND COMMUNITY ISSUES

The Company's core activities are undertaken by Montanaro which has implemented environmental management practices which are detailed on its website.

As an investment trust the Company has no direct social or community responsibilities. However, the Company believes that it is in shareholders' interests to consider human rights issues, environmental, social and governance factors when selecting and retaining investments. Further details are provided in the Manager's report.

MODERN SLAVERY ACT 2015

As in investment trust the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that that Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015.

The Chairman's Statement, the Manager's Report and the portfolio analysis form part of the Strategic Report. The Strategic Report was approved by the Board at its meeting on 11 June 2018.

On behalf of the Board

ROGER CUMING
Chairman

11 June 2018

Related Party Transactions

Under the Listing Rules, the Manager is regarded as a related party of the Company.  The amounts paid to the Manager are disclosed in note 3.

As at 31 March 2018, the Board comprised one female and three male Directors.

	Fees for the year to 31 March 2019 (annualised) £	Current fees for the year to 31 March 2018 £
Chairman	32,000	32,000
Chairman of the Audit  and Management  Engagement  Committee	25,500	25,500
Senior Independent Director	23,000	23,000
Non-executive Director	22,000	22,000

There is no requirement under the Articles for Directors to hold shares in the Company. The interests of the current Directors and their families in the voting rights of the Company are set out below:

	As at 31 March 2018 No. of shares	As at 1 April 2017 No. of shares
Roger Cuming	10,000	10,000
Kate Bolsover	1,669	1,669
Arthur Copple	15,0002	5,0001
James Robinson	8,0003	8,0003

¹  Held by Mrs Copple.

²  Includes 5,000 shares held by Mrs Copple.

³  Held jointly by Mr and Mrs Robinson.

There have been no changes to the above holdings between 31 March 2018 and the date of this Annual Report. None of the Directors nor any persons connected with them had a material interest in any of the Company's transactions, arrangements or agreements during the year.

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice) including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland".

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm to the best of their knowledge that:

·     the financial statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and return of the Company; and

·     the Strategic Report and the Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

In the opinion of the Board, the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

ROGER CUMING

Chairman

11 June 2018

Income Statement for the year to 31 March 2018

		Year to 31 March 2018					Year to 31 March 2017
		Revenue		Capital		Total	Revenue		Capital	Total
	Notes	£'000		£'000		£'000	£'000		£'000	£'000
Gains on investments at fair value through profit or loss	9	-		16,728		16,728	-		22,299	22,299
Income	2	5,087	-		5,087		4,535	-		4,535
Management fee	3	(329)	(987)		(1,316)		(480)	(1,439)		(1,919)
Other expenses	4	(491)	-		(491)		(495)	-		(495)
Movement in fair value of derivative financial instruments	11	-	-		-		-	141		141
Net return before finance costs and taxation		4,267	15,741		20,008		3,560	21,001		24,561
Interest payable and similar charges	5	(148)	(443)		(591)		(193)	(579)		(772)
Net return before taxation		4,119	15,298		19,417		3,367	20,422		23,789
Taxation	6	(7)	-		(7)		(10)	-		(10)
Net return after taxation		4,112	15,298		19,410		3,357	20,422		23,779
Return per Ordinary share: Basic and Diluted	8	12.3p	45.7p		58.0p		10.0p	61.0p		71.0p

The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS 102"). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 and updated in January 2017 by the AIC ("AIC SORP").

All revenue and capital items in the above statement derive from continuing operations.

There are no items of other comprehensive income and therefore the net return after taxation is both the profit and the total comprehensive income for the year.

No operations were acquired or discontinued in the year.

Statement of Changes in Equity for the year to 31 March 2018

		Called-up	Share	Capital			Distributable	Total equity
		share	premium	redemption	Special	Capital	revenue	Shareholders'
		capital	account	reserve	reserve*	reserve*	reserve*	funds
Year to 31 March 2018	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
As at 31 March 2017		3,348	19,307	1,362	4,642	176,165	6,616	211,440
Total comprehensive income:
Fair value movement of
investments	9	-	-	-	-	16,728	-	16,728
Costs allocated to capital		-	-	-	-	(1,430)	-	(1,430)
Net revenue for the year		-	-	-	-	-	4,112	4,112
		-	-	-	-	15,298	4,112	19,410
Dividends paid in the year	7	-	-	-	-	-	(3,515)	(3,515)
As at 31 March 2018		3,348	19,307	1,362	4,642	191,463	7,213	227,335

		Called-up	Share	Capital			Distributable	Total equity
		share	premium	redemption	Special	Capital	revenue	Shareholders'
		capital	account	reserve	reserve*	reserve*	reserve*	funds
Year to 31 March 2017	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
As at 31 March 2016		3,348	19,307	1,362	4,642	155,743	6,607	191,009
Total comprehensive income:
Fair value movement of investments	9	-	-	-	-	22,299	-	22,299
Costs allocated to capital		-	-	-	-	(2,018)	-	(2,018)
Movement in fair value of derivative financial instruments	11	-	-	-	-	141	-	141
Net revenue for the year		-	-	-	-	-	3,357	3,357
		-	-	-	-	20,422	3,357	23,779
Dividends paid in the year	7	-	-	-	-	-	(3,348)	(3,348)
As at 31 March 2017		3,348	19,307	1,362	4,642	176,165	6,616	211,440

*These reserves are distributable, excluding any unrealised capital reserve. The special reserve can be used for the repurchase of the Company's own shares.

Balance Sheet as at 31 March 2018

		31 March 2018			31 March 2017
	Notes	£'000	£'000		£'000	£'000
Fixed assets
Investments at fair value	9			233,470			217,475
Current assets
Debtors		720			479
Cash at bank		13,487			14,261
		14,207			14,740
Creditors: amounts falling due within one year
Other creditors		(342)			(775)
		(342)			(775)
Net current assets				13,865			13,965
Total assets less current liabilities				247,335			231,440
Creditors: amounts falling due after more than one year
Fixed rate credit facility	10			(20,000)			(20,000)
Net assets				227,335			211,440
Share capital and reserves
Called-up share capital	12			3,348			3,348
Share premium account				19,307			19,307
Capital redemption reserve				1,362			1,362
Special reserve				4,642			4,642
Capital reserve				191,463			176,165
Distributable revenue reserve				7,213			6,616
Total equity shareholders' funds				227,335			211,440
Net asset value per Ordinary share: Basic and Diluted	14			679.1p			631.6p

These financial statements were approved and authorised for issue by the Board of Directors on 11 June 2018.

ROGER CUMING
Chairman

Company Registered Number: 3004101

Notes to the Financial Statements at 31 March 2018

1 Accounting Policies

ACCOUNTING CONVENTION

The financial statements are prepared on a going concern basis under the historical cost convention as modified by the revaluation of fixed asset investments and in accordance with UK applicable accounting standards and the Statement of Recommended Practice regarding the Financial Statements of Investment Trust Companies and Venture Capital Trusts ("SORP") issued in November 2014 and updated in January 2017. The financial statements have been prepared under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Following the adoption of FRS 102, the Company elected not to present the statement of cash flows per paragraph 7.1.A. The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied throughout the year and the preceding year.

INCOME RECOGNITION

Dividend income is included in the financial statements when the investments concerned are quoted ex-dividend and shown net of any associated tax credit where applicable.

Deposit interest and underwriting commissions receivable are included on an accruals basis.

EXPENSES AND FINANCE COSTS

All expenses are accounted for on an accruals basis. Management fees and finance costs are allocated 75% to the capital reserve and 25% to the revenue reserve in line with the expectations of long-term returns from the investment portfolio of the Company.

Costs arising on early settlement of debt are allocated 100% to capital, in accordance with the requirements of the SORP.

All other expenses are allocated in full to the revenue account.

INVESTMENTS

The Company has fully adopted sections 11 and 12 of FRS 102. Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned and are initially measured at fair value.

All investments held by the Company are classified as at "fair value through profit or loss". Investments are initially recognised at cost, being the fair value of the consideration given. After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments recognised in the Income Statement and allocated to capital. Transaction costs on acquisition are included within the initial recognition and the gain or loss on disposal is calculated net of transaction costs on disposal.

For investments actively traded in organised financial markets, fair value is generally determined by reference to quoted market bid prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange on the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset.

TREASURY SHARES

The consideration paid for shares held in treasury is presented as a deduction from equity shareholders' funds in accordance with FRS 102. Any profit on the sale of shares out of treasury is credited to the share premium account in full.

TAXATION

The charge for taxation is based on the net revenue for the year. Deferred taxation is provided in accordance with FRS 102 on all timing differences that have originated but not reversed by the Balance Sheet date. Provision is made for deferred taxation on the liability method, without discounting, on all timing differences calculated at the current rate of tax relevant to the benefit or liability.  Deferred taxation assets are only being recognised to the extent that they are regarded as recoverable.

DIVIDENDS PAYABLE TO SHAREHOLDERS

In accordance with FRS 102, interim dividends are not accounted for until paid and final dividends are accounted for when approved by shareholders at an AGM.

BANK LOANS AND BORROWINGS

All bank loans and borrowings are initially recognised at cost, being the fair value of the consideration received less issue costs where applicable. After initial recognition, all interest bearing loans and borrowings are subsequently measured at amortised cost. Any differences between cost and redemption value are recognised in the Income Statement over the period of the borrowings on an effective interest basis.

SEGMENTAL REPORTING

The Company has one reportable segment being invested primarily in a portfolio of quoted UK small companies.

DERIVATIVE FINANCIAL INSTRUMENTS

It is the Company's policy not to trade in derivative financial instruments. However, the Company had utilised an interest rate swap to mitigate its exposure to interest rate changes on its previous bank loan which was subject to a variable rate of interest; this swap expired during the year ended 31 March 2017. Details can be found in note 11.

Derivatives are recognised at fair value. Movement in the fair value of the interest rate swap has been recognised in the Income Statement and allocated to capital.

RESERVES

Capital reserve

The following are accounted for in this reserve:

·      gains and losses on the realisation of investments;

·      net movement arising from changes in the fair value of investments;

·      net movement from changes in the fair value of derivative financial instruments; and

·      expenses, together with related taxation effect, charged to this account in accordance with the above policies.

Special reserve

The special reserve was created by a reduction in the share premium account by order of the High Court in August 1998. It can be used for the repurchase of the Company's Ordinary shares.

Any consideration paid for shares bought into and held in treasury is shown as a deduction from the special reserve.

Capital redemption reserve

The capital redemption reserve accounts for amounts by which the issued capital is diminished through the repurchase and cancellation of the Company's own shares.

2 Income

						Year to					Year to
						31 March 2018					31 March 2017
						£'000					£'000
Income from investments						5,079					4,535
UK dividend income						4,900					4,491
Overseas dividend income						179					44
Other income
Bank interest						8					-
Total income						5,087					4,535
Total income comprises
Dividends from financial assets at fair value						5,079					4,535
Interest received						8					-
Dividends and interest						5,087					4,535
3 Management fee
			Year to 31 March 2018						Year to 31 March 2017
	Revenue		Capital		Total		Revenue		Capital				Total
	£'000		£'000		£'000		£'000		£'000				£'000
Management fee	316		950		1,266		467		1,402				1,869
AIFMD fee	13		37		50		13		37				50
	329		987		1,316		480		1,439				1,919

The Manager received a monthly management fee equivalent to 1/12 of 0.50% (2017: 0.85%) of the gross assets of the Company valued at the close of business on the last business day of each month.

At 31 March 2018, £113,000 (2017: £233,000) was due for payment to the Manager.

4 Other Expenses

	Year to		Year to
	31 March 2018		31 March 2017
	£'000		£'000
Administration and company secretarial fees (LAFA)*		72	102
Company secretarial fees (Maitland)*		36	9
Directors' fees†		101	93
Depositary fee		76	68
Registrar fee		35	27
Auditor's remuneration for:
- audit		23	23
Custody and other bank charges		21	21
Legal fees		5	5
Other expenses (including VAT)		122	147
		491	495

*Maitland were appointed as Company Secretary from 1 January 2017.

† A breakdown of the Directors' remuneration is set out in the Directors' Remuneration report.

The Company has no employees.

5 Interest Payable and Similar Charges

		Year to 31 March 2018			Year to 31 March 2017
Financial liabilities not at		Revenue	Capital	Total	Revenue	Capital	Total
fair value through profit or loss		£'000	£'000	£'000	£'000	£'000	£'000
Interest payable on loan		134	402	536	186	559	745
Loan commitment fee		14	41	55	7	20	27
		148	443	591	193	579	772

6 Taxation

Analysis of charge in year

		Year to 31 March 2018			Year to 31 March 2017
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Current tax:
Overseas tax suffered		7	-	7	10	-	10
		7	-	7	10	-	10

The taxation charge for the year is lower than the standard rate of Corporation Tax in the UK of 19% (2017: 20%). The differences are explained below.

	Year to 31 March 2018				Year to 31 March 2017
	Revenue	Capital	Total		Revenue		Capital		Total
	£'000	£'000	£'000		£'000		£'000		£'000
Net return before taxation	4,119	15,298		19,417		3,367		20,422		23,789
Theoretical tax at UK corporation tax rate of	783	2,907		3,690		674		4,084		4,758
19% (2017: 20%)
Effects of:
- UK dividends that are not taxable	(883)	-		(883)		(836)		-		(836)
- Foreign dividends that are not taxable	(34)	-		(34)		(9)		-		(9)
- Non-taxable investment gains	-	(3,178)		(3,178)		-		(4,488)		(4,488)
- Irrecoverable overseas tax	7	-		7		10		-		10
- Disallowed expenses	-	-		-		-		15		15
- Unrelieved excess expenses	134	271		405		171		389		560
Taxation charge for the year	7	-		7		10		-		10

Factors that may affect future tax charges

At 31 March 2018, the Company had no unprovided deferred tax liabilities (2017: £nil). Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Trust meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust company. At that date, based on current estimates and including the accumulation of net allowable losses, the Company had unrelieved losses of £43,465,000 (2017: £41,330,000) that are available to offset future taxable revenue. A deferred tax asset of £7,389,000 (2017: £7,026,000) has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses and accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses.

7 Dividends

	Year to		Year to
	31 March		31 March
	2018		2017
		£'000		£'000
Paid
2017 Final dividend of 10.50p (2016: 10.00p) per Ordinary share		3,515		3,348
Proposed
2018 Final dividend of 11.00p (2017: 10.50p) per Ordinary share		3,682		3,515

8 Return per Ordinary Share

		Year to 31 March 2018			Year to 31 March 2017
		Revenue	Capital	Total	Revenue	Capital	Total
Ordinary share		12.3p	45.7p	58.0p	10.0p	61.0p	71.0p

Revenue return per Ordinary share is based on the net revenue after taxation of £4,112,000 (2017: £3,357,000) and 33,475,958 (2017: 33,475,958) Ordinary shares, being the weighted average number of Ordinary shares, excluding any shares held in treasury.

Capital return per Ordinary share is based on net capital gains for the year of £15,298,000 (2017: £20,422,000), and on 33,475,958 (2017: 33,475,958) Ordinary shares, being the weighted average number of Ordinary shares, excluding any shares held in treasury.

Normal and diluted return per share are the same as there are no dilutive elements on share capital.

9 Investments

	Year to	Year to
	31 March 2018	31 March 2017
	£'000	£'000
Total investments at fair value	233,470	217,475

The investment portfolio comprises 55 (2017: 53) traded and listed UK equity holdings.

	Year to	Year to
	31 March 2018	31 March 2017
	£'000	£'000
Opening book cost	157,446	157,627
Opening investment holding gains	60,029	51,875
Opening valuation	217,475	209,502
Movements in the year
Purchases at cost	63,925	66,150
Sales - proceeds	(64,658)	(80,476)
- realised gains on sales	15,828	14,145
Increase in investment holding gains	900	8,154
Closing valuation	233,470	217,475
Closing book cost	172,541	157,446
Closing investment holding gains	60,929	60,029
	233,470	217,475

FAIR VALUE HIERARCHY

In accordance with FRS 102, the Company must disclose the fair value hierarchy of financial instruments.

The fair value hierarchy consists of the following three levels:

·      level 1 - The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date;

·      level 2 - Inputs other than quoted prices included within level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

·      level 3 - Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

For financial instruments (within the scope of FRS 102), which are measured at fair value in the Balance Sheet, an entity shall disclose for each class of financial instruments, the level in the fair value hierarchy into which the fair value measurements are categorised in their entirety.

The table below sets out fair value measurements of financial assets in accordance with the FRS 102 fair value hierarchy system:

		31 March 2018			31 March 2017
		Level 1	Level 2	Total	Level 1	Level 2	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Equity investments		233,470	-	233,470	217,475	-	217,475
		233,470	-	233,470	217,475	-	217,475

There are no financial liabilities measured at fair value for the period ended 31 March 2018 (2017: £nil).

There were no level 3 investments.

TRANSACTION COSTS

During the year, the Company incurred transaction costs of £179,000 (2017: £221,000) and £51,000 (2017: £77,000) on purchases and sales of investments respectively. These amounts are deducted in determining gains on investments at fair value as disclosed in the Income Statement.

	Year to		Year to
	31 March 2018		31 March 2017
	£'000		£'000
Net gains on investments at fair value
Gains on sales		15,828	14,145
Changes in fair value		900	8,154
		16,728	22,299

A list of the twenty largest holdings by market value and an analysis of the investment portfolio by industrial or commercial sector can be found in the annual report and accounts.

10 Fixed Rate Term and Floating Rate Revolving Credit Facilities

	Year to		Year to
	31 March 2018		31 March 2017
	£'000		£'000
Falling due after more than one year		20,000	20,000
		20,000	20,000

On 19 December 2016, the Company agreed a £20,000,000 Fixed Rate Term Loan Facility with ING Bank N.V. At the same time, the Company also entered into a £10,000,000 Floating Rate Revolving Credit Facility.

The Fixed Rate Term Loan Facility is available for a five-year term from 19 December 2016 to 19 December 2021. The loan was fully drawn down at 31 March 2018 and 31 March 2017. Interest is payable at a fixed rate of 2.68% per annum in both the current and prior year.

The Floating Rate Revolving Credit Facility is available for a five-year term from 19 December 2016 to 19 December 2021. None of this facility was utilised at 31 March 2018 and 31 March 2017. When drawndown, interest is payable at LIBOR plus a margin of 1.65% per annum and mandatory costs. A Commitment fee is payable on the daily undrawn balance at 0.55% per annum in the event that the average utilisation is less than 50% during the applicable quarter or 0.40% per annum in the event that the average utilisation is greater than 50% during the applicable quarter.

The facilities contain covenants which require that total borrowing will not at any time exceed 30% of the adjusted net asset value, which itself shall not fall below £80,000,000 in respect of both facilities. The Company remained compliant with these covenants throughout the year.

11 Derivative Financial Instruments

An interest rate swap is an agreement between two parties to exchange fixed and floating rate interest payments based upon interest rates defined in the contract without the exchange of the underlying principal amounts.

The Company entered into an agreement on 19 December 2011 which swapped its obligation to pay variable rates of interest on its previous loan facility for a fixed rate until 19 December 2016, when it was repaid and the Interest Rate Swap expired.

The fair value of the derivative financial instrument is shown below:

	Year to		Year to
	31 March 2018		31 March 2017
	£'000		£'000
Opening valuation		-	(141)
Movement in fair value		-	141
Closing valuation		-	-

12 Share Capital

	31 March 2018		31 March 2017
	£'000		£'000
Allotted, called-up and fully paid:
33,475,958 (2017: 33,475,958) Ordinary shares of 10p each		3,348	3,348

Voting rights

Ordinary shareholders have unrestricted voting rights at all general meetings of the Company.

At the AGM on 17 July 2017, the Company was granted the authority to purchase 5,018,046 Ordinary shares. This authority is due to expire at the conclusion of the next AGM.

During the year, no shares were purchased.

The Company does not have any externally imposed capital requirements. The capital of the Company is managed in accordance with its Investment Policy in pursuit of its Investment Objective, both of which are detailed in the Strategic Report.

13 Own Shares Held in Treasury

The Company has previously taken advantage of the regulations which came into force on 1 December 2003 to allow companies, including investment trusts, to buy their own shares and hold them in Treasury for re-issue at a later date. There were no shares held in treasury at any time during the year.

14 Net Asset Value per Ordinary Share

Net asset value per Ordinary share is based on net assets of £227,335,000 (2017: £211,440,000) and on 33,475,958 (2017:33,475,958) Ordinary shares, being the number of Ordinary shares in issue at the year-end.

15 Commitments and Contingent Liabilities

At 31 March 2018, there were no capital commitments or contingent liabilities (2017: nil).

16 Related Party Transactions

Under the Listing Rules, the Manager is regarded as a related party of the Company. The amounts paid to the Manager are disclosed in note 3.

The related party transactions with the Directors are set out in the Directors' Remuneration Report in the annual report and accounts.

17 Publication of Non-Statutory Accounts

The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The 2018 Annual Report and Financial Statements will be filed with the Registrar of Companies shortly.

The report of the auditor for the year ended 31 March 2018 contains no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.

This announcement was approved by the Board of Directors on 11 June 2018.

18 Annual Report

Copies of the Annual Report will be sent to members shortly and will be available from the registered office c/o The Company Secretary, Montanaro UK Smaller Companies Investment Trust PLC, Springfield Lodge, Colchester Road, Chelmsford CM2 5PW.

19 Annual General Meeting

The Annual General Meeting of the Company will be held at Montanaro Asset Management Limited, 53 Threadneedle Street, London EC2R 8AR on Wednesday, 18 July 2018 at 12 noon.

ENDS

 

END

 

 

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